While federally-insured reverse mortgage volume is expected to drop next year in response to extensive program changes, endorsements are expected to grow in subsequent years as the United States population ages, according to actuarial projections.

Volume of Federal Housing Administration-guaranteed Home Equity Conversion Mortgage (HECM) endorsements grew from fiscal year 2012 to 2013, but is projected to drop nearly 11% next year.

The HECM Fund’s economic value as of the end of fiscal year 2013 was an estimated $6.54 billion, with insurance-in-force of nearly $87.7 billion, according to the most recent independent actuarial analysis of the economic net worth and soundness of the Federal Housing Administration’s Mutual Mortgage Insurance Fund, conducted by Integrated Financial Engineering, Inc.

At the end of fiscal year 2014, the HECM Fund’s economic value will have grown to a projected $15.38 billion, with insurance-in-force of nearly $161.5 billion.

“The initial disbursement limitation and reduction of [principal limit factors] for the FY 2014 introduced new program are likely to decrease HECM demand compared with future volume projected in 2012 Review,” says the 2013 actuarial review of the HECM Fund completed by Integrated Financial Engineering.

The 2012 data are based on actual endorsement volume, while 2013 numbers are based on data as of June 30, 2013. Projections from fiscal year 2014 through 2020 are based on the reviewer’s updated HECM demand model.

Related

The article presents some obvious facts but fails to disclose some of the most important issues the actuarial review reports on Page 17. As an industry we owe much to HUD for the actions displayed on that page.

First, HUD has put fund transfers where its mouth is. This year alone, HUD put all of the funds ($1.686 billion) it got from the Treasury into the HECM portion of the MMI Fund. Then far beyond that it took $4.263 billion out of the other MMI Fund programs and placed them into the HECM portion. That is a total of $5.949 billion in transfers during fiscal year 2013 alone.

Add in the $1.748 billion put into the HECM portion of the MMI Fund from other MMI Fund programs during fiscal 2010 plus another $535 million during fiscal 2011 and the total of funds taken from other MMI Fund programs in the last four fiscal years is $6.546 billion added to the HECM portion of the MMI Fund. That kind of commitment to the HECM program is extraordinary. Congress would not even put $250 million into the HECM program during the fiscal year 2011 budget battle.

Now add all funds transferred from all sources and the total soars to $8.232 billion. Without those transfers, the value of the HECM program inside the MMI Fund would be a negative $1.691 billion.

The HUD actions take away the sting of a negative net position for the HECM program not only now but also most likely for years to come. This should close the mouths of industry naysayers who falsely claim that HUD is intentionally trying to destroy the program through supposed misconduct and program changes. Such claims are nonsensical and without foundation. Only those lacking sufficient financial training would make such sophomoric claims.

Despite what industry critics have accused HUD of, HUD has definitely uplifted the HECM program and made it a viable program for years to come. My hat is off to HUD and I for one want to express my gratitude to HUD for putting MMI Fund transfers where their mouth has been in supporting the HECM program.

(The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)